Chinese
Companies will be Investigated for Corruption in Foreign Countries
Authorities can now probe Chinese firms’
misconduct in any jurisdiction, while blocking unauthorised foreign
investigations
1.
New Law Enacted: China's National People's
Congress Standing Committee approved the landmark Anti-Cross-Border
Corruption Law on Friday. It came into immediate effect.
2.
Key Objectives:
o
Strengthen investigations into cross-border
corruption.
o
Recover illicit assets held overseas.
o
Combat capital flight and bribery involving Chinese
individuals and enterprises.
o
Establish formal mechanisms for international
cooperation and asset recovery.
3.
Legislative Background:
o
The legislation has been under consideration since
2023.
o
China's Communist Party third plenum in July 2024
called for stronger anti-corruption legislation.
o
The draft received its first reading on 25 August
2026 and a second reading earlier in November 2026.
4.
Strengthening Overseas Enforcement: The law
provides a statutory framework for existing campaigns:
o
Operation Fox Hunt: Pursuit
of economic fugitives overseas.
o
Operation Sky Net: Recovery
of illicit assets and fugitives who have fled China.
o
It seeks to overcome difficulties arising from the
absence of extradition treaties with several Western countries.
5.
Countering Foreign Investigations:
o
The law empowers Beijing to block unauthorised
foreign investigations conducted on Chinese territory.
o
It authorises retaliatory measures against overseas
enforcement actions considered to be attempts to suppress Chinese interests.
o
These provisions have no direct equivalent in US or
UK anti-corruption legislation.
6.
Broader Scope than Western Laws:
o
The legislation draws structural inspiration from
the US Foreign Corrupt Practices Act (FCPA) and Britain's Bribery Act.
o
However, it covers outbound bribery, misconduct in
the state sector and cross-border transfers of illicit assets.
o
It also applies to Chinese citizens and enterprises
irrespective of where the alleged misconduct occurs.
o
Overseas subsidiaries of Chinese enterprises are
also brought within its enforcement reach.
7.
Mandatory Corporate Compliance:
o
Companies are required to establish anti-corruption
compliance frameworks.
o
Failure to establish such a framework can itself
constitute a violation, even if no bribery has occurred.
o
This differs from US and UK frameworks, where
effective compliance procedures can provide mitigating factors or a defence.
8.
Important Provisions – Articles 18 and 26:
o
Article 18: Requires companies to cooperate
with Chinese investigative authorities.
o
Article 26: Prohibits companies from sharing
evidence or assisting foreign regulators, including the US Department of
Justice and Britain's Serious Fraud Office, without prior Chinese government
approval.
o
Obstruction or concealment of information can
constitute an independently punishable offence.
9.
Digital Investigations and Confidentiality:
o
Enforcement authorities are authorised to use
digital tools in cross-border investigations.
o
Investigative authorities must protect state
secrets, commercial secrets and personal information collected during
investigations.
10.
Restrictions on Foreign Executives:
o
Foreign executives and employees based in China may
be prevented from leaving the country once an investigation has been initiated.
o
Multinational companies will need to incorporate
this risk into their crisis-management and compliance planning.
11.
Impact on Multinational Companies:
o
Foreign companies operating in China and Chinese
companies with overseas operations will face additional compliance obligations.
o
Businesses operating through regional headquarters
in international financial centres may encounter conflicting legal
requirements.
o
Companies could face competing demands from Beijing
and foreign regulators regarding disclosure of evidence, asset freezes, data
privacy and judicial procedures.
Effect of
this Law
The legislation significantly expands China's
jurisdiction over cross-border corruption investigations and overseas assets of
Chinese individuals and enterprises. It also gives Beijing greater control over
the disclosure of evidence to foreign enforcement agencies.
Key implication:
Multinational companies and their overseas subsidiaries may face a direct
conflict between China's mandatory cooperation requirements and foreign laws
governing regulatory investigations, data protection and disclosure of
evidence.
China’s
top legislature has passed a landmark law targeting cross-border corruption,
equipping Beijing with expansive new tools to pursue illicit offshore assets
while countering foreign attempts to investigate wrongdoing in China.
The
Anti-Cross-Border Corruption Law was approved at the close of the 25th session
of the 14th National People’s Congress Standing Committee on Friday and took
effect immediately, according to state news agency Xinhua.
The
statute establishes formal mechanisms for handling cross-border cases,
international cooperation and asset recovery.
The
draft of the law was submitted for its first deliberation at a Standing
Committee session on August 25, and for a second deliberation earlier this
month.
The
legislation has been in the works since 2023, when the committee listed it in
its annual legislative plan. In July 2024, the Communist Party’s third plenum
called for advances to national anti-corruption legislation and the
introduction of a law to combat cross-border corruption.
The
law creates a statutory backbone for Beijing’s long-standing pursuit of
economic fugitives and illicit capital flight under campaigns such as Operation
Fox Hunt and Operation Sky Net, which have frequently been hobbled by the lack
of extradition treaties with key Western countries.
But
it is also a defensive firewall against perceived foreign legal overreach.
While
drawing structural inspiration from overseas precedents such as the US Foreign
Corrupt Practices Act (FCPA) and Britain’s Bribery Act, the Chinese framework
is broader and more institutionally integrated, covering outbound bribery,
state-sector misconduct and the cross-border flight of illicit assets.
Crucially,
it codifies measures to block unauthorised foreign investigations on Chinese soil
and authorises retaliatory measures against overseas enforcement actions deemed
to be pretexts for suppressing Chinese interests. There is no direct equivalent
for these provisions under US or British law.
Under
the American law, a robust corporate compliance programme can be a mitigating
factor in sentencing; while under the British rules, “adequate procedures” also
serve as a defence. But under China’s law, failure to establish a compliance
framework would itself be a violation, regardless of whether any bribery
occurred.
During
its second reading earlier this week, lawmakers refined provisions authorising
enforcement bodies to deploy digital tools in cross-border investigations. At
the same time, the text added explicit confidentiality obligations requiring
supervisory authorities to protect state secrets, trade secrets and personal
information gathered during inquiries.
The
law’s sweeping reach will face complex tests in global financial hubs that host
regional headquarters for many multinationals and Chinese companies – firms
operating in these jurisdictions may be forced to balance Beijing’s demands for
evidence and asset restraint against foreign privacy protections, local
judicial due process and parallel enforcement risks.
In
an analysis published last month, law firm DLA Piper said the law would have
implications for both foreign companies doing business in China and Chinese
enterprises with overseas operations.
It
noted that under Article 26, companies are barred from sharing evidence or
aiding foreign regulators – such as the US Department of Justice or Britain’s
Serious Fraud Office – without Beijing’s explicit approval, while Article 18
orders compulsory cooperation with Chinese investigators.
It
pointed out that unlike Western frameworks such as the FCPA, where
self-disclosure and assistance are voluntary and rewarded with leniency, the
Chinese statute leaves little leeway for negotiation and makes obstruction or
concealment an independently punishable offence.
Foreign
executives and employees based in China may be prohibited from leaving the
country once an investigation has been initiated, a risk that companies are
encouraged to consider in crisis management planning, according to the
analysis.
It
said that the statute effectively closed enforcement loopholes for Chinese
enterprises expanding globally, because it was a nationality-based jurisdiction
that put Chinese citizens and enterprises within scope regardless of where the
conduct occurred. The law also extends Beijing’s reach to Chinese enterprises’
overseas subsidiaries, notwithstanding their separate legal personality under
local law.